Chagee - Earnings Call - Q3 2025

Transcript

Speaker 2

Good morning and good evening, ladies and gentlemen. Thank you for standing by and welcome to Chagee's third quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. We'll be hosting a question-and-answer session after management prepares remarks. Please note that today's event is being recorded. With that, I'll now turn the call over to the first speaker today, Ms. Alicia Guo, Investor Relations Director of the company. Please go ahead, ma'am.

Thank you.

Speaker 3

Hello everyone, and welcome to Chagee's third quarter 2025 earnings call.

With us today are Mr. Junjie Zhang, our CEO, and Mr. Aaron Huang, our CFO. The company's financial and operating results were released by the newswire earlier today and are currently available online.

Before we continue, I refer you to our Safe Harbor statement in the earnings press release, which applies to this call. Any forward-looking statements that we make on this call are based on assumptions as of today, and Chagee does not undertake any obligations to update these statements. Also, this call includes discussions of certain non-GAAP financial measures. Please refer to our earnings release, which contains a reconciliation of non-GAAP measure to GAAP measure. With that, I will turn the call to our CEO, Mr. Junjie Zhang. Please go ahead, sir.

Speaker 4

感谢各位今天参加霸王茶姬2025年第三季度的业绩发布会。首先，我想对全体霸王茶姬的伙伴们致以谢意。在充满变化与挑战的市场环境中，是他们的坚韧与卓越执行，让我们得以稳步前行，并持续为我们所坚信的长期未来奠定基石。

Speaker 3

Hello everyone, thank you all for joining Chagee's third quarter 2025 earnings conference call.

First and foremost, I would like to express my sincere gratitude to every member of the Chagee team. In a dynamic and challenging market, our resilience and strong execution have driven steady progress and built a durable foundation for the long-term future we envision.

Speaker 4

过去几年，我们一直在回答一个核心问题：霸王茶姬究竟为何而存在？我们的答案是以东方美学，重新定义茶饮。这是我们的初心和使命。我们期待与用户产生深度的价值共鸣。因此，我们所有的战略原点都围绕着聚焦用户价值。我们所做的每一个决策，推进的每一项举措，最终目标都是为了持续扩大并深化那些认同我们品牌价值的用户群体。基于这一根本的信念，我们将坚定不移地贯彻高质量发展的战略。

Over the past few years, we have consistently asked one core question: Why does Chagee exist? Our answer is clear. That is, bringing people together through tea. This founding mission and commitment drives us to focus on user value as the starting point for all strategies. Every decision and initiative aims to expand and deepen a community of people who connect with our brand values. Guided by this belief, we will steadfastly execute our high-quality development strategy.

我们所坚持的高品质产品，在追逐流量的时代，我们选择回归产品主义的路线，持续推进原料升级战略，坚持做一杯货真价实、有温度、有文化内涵的好茶。这不仅是一切用户体验的起点，更是我们品牌最坚实的信任壁垒。我们坚持用户体验，始终致力于建设、建立情感连接，让每一杯茶都成为可以分享的故事。我们提供的不仅是一杯茶，更是一份基于东方美学的独特体验与情感共鸣。我们坚持门店质量优先，全球门店扩张始终以单店健康与盈利质量为前提，推动门店规模健康增长，打造高质量门店，致力于将每一家店打造为消费者以茶会友的首选之地。

We're dedicated to delivering high-quality products. Rather than chasing traffic and trends, we prioritize our product excellence. Our ongoing raw material upgrades ensure tea that is authentic, wholesome, warm, and culturally rich, serving as a cornerstone of every experience and a key trust pillar for our brand. We emphasize the user experience, creating engaging content, and building emotional connections to make each cup a shareable story. Our offering goes beyond a beverage to a distinctive experience rooted in Eastern aesthetics. Store quality remains our focus, and global expansion will depend on each store's health and profitability. We pursue healthy growth across store network, identify high potential locations, and strive to make every Chagee store the go-to place for friends gathering over tea.

面对市场的短期波动，我们始终保持战略定力。我们对全球茶饮赛道的广阔前景，以及霸王茶姬所选择的这条独特的、以文化和品质为驱动的路径，充满信心。

In the face of short-term market fluctuations, we maintain our strategic resolve. We're deeply confident in the vast potential of global tea beverage and in the distinctive path Chagee has chosen, the one driven by culture and quality.

以上是我们对霸王茶姬业务本质与未来方向的思考。接下来，我将交给CFO Aaron，由他为大家呈现本季度战略落地的具体成果。谢谢。

These are my reflections on the core of our business and future direction. Now, I will turn the call over to our CFO Aaron, who will detail the specific results of our strategic execution this quarter. Thank you.

Speaker 0

See you, Junjie. Hello, everyone. Thank you for joining our earnings call. Before we dive into the detail, please note that all amounts are in RMB and all comparisons are on a year-over-year basis, unless otherwise stated. So, in the third quarter, our total net revenue was ¥3,208.3 million, a decrease of 9.4% year-over-year, and 3.7% sequentially. Total GMV for the quarter was ¥7,929.5 million. Despite the challenging macro environment and the intensified competition, we maintained our focus on profitable growth and disciplined execution. Non-GAAP net income was ¥502.8 million, with a non-GAAP net margin of 15.7%, reflecting underlying resilience of our business model. Let me highlight several key operational achievements. First, our global tea house network reached 7,338 stores, with a net addition of 300 tea houses in the third quarter. Overseas expansion accelerated, introducing 54 net new tea houses as we successfully enter new markets, including the Philippines and Vietnam. Second, product innovation continued to drive momentum. In the home market, we launched the low caffeine jasmine green tea latte, becoming a top three bestseller, driving strong user acquisition. 博雅 jasmine green milk tea earned the best nature or organic beverage title at the 2025 World Beverage Innovation Awards, underscoring our strong product quality and leadership in healthy beverage innovation. In Asia Pacific, the PG Ulo milk tea launch performed exceptionally well, validating our regional product strategy. Furthermore, our member ecosystem remains robust. Total registered members reached 222 million by the end of the third quarter, representing an increase of 15 million sequentially and 36.7% year-over-year. Our franchisee network also demonstrated remarkable stability. The store closure rate remained low at 0.3% for three consecutive quarters, underscoring the health and confidence of our franchisee partners. Now, let me provide a more detailed financial analysis. Starting with revenue, our total net revenue for the third quarter was ¥3,208.3 million, mainly driven by the continued expansion of our tea house network. Among them, net revenue from franchisee tea houses was ¥2,811.6 million, representing 87.6% of our total net revenue. Net revenue from company-owned tea houses increased by 63.8% to ¥396.7 million, accounting for 12.4% of total revenue. The increase was primarily driven by the expansion of our company-owned tea houses network in both Greater China and overseas markets. In Greater China, total GMV decreased by 6.2% year-over-year to ¥7,629.2 million. The average monthly GMV per tea house in Greater China was ¥378,506, a year-over-year decline, reflecting both high base in last year and a more severe competitive environment, including the impact of delivery platform subsidy competition. Even so, our commitment to maintain premium position and brand integrity remains central. Meanwhile, overseas markets continue to show substantial progress, with GMV increasing 75.3% year-over-year and 27.7% quarter-over-quarter to ¥300.3 million. This growth is mainly driven by strategic store expansion and growing brand awareness, positioning the overseas market as a key pillar of our future growth. In the third quarter, we expanded our overseas presence by adding a net 54 stores, bringing our total store number to 262 stores as of September 30, 2025. This growth was fueled by our successful entries into the Philippines and Vietnam, as well as continued steady expansion in Malaysia, Thailand, and Indonesia. During the quarter, we added 18 new stores in Malaysia and 9 each in both Thailand and Indonesia. Our commitment to being an exceptional employer has earned prestige awards in key markets, including HR Asia's best companies to work for in Asia 2025 in Malaysia and the certified OJT Center plus NS Mark Gold status in Singapore. These honors strengthen our brand and help us attract the top talent needed for growth. While our store expansion continues, we recognize pressure on GMV performance at existing stores, with domestic and overseas in-store sales GMV declining by 27.9% and 23.4%, respectively. This softness is attributed to a high base from the same period last year and intensified competitive pressure. However, our franchisee fundamentals remain solid, as evidenced by consistently low closure rate. We expect same store GMV growth to remain under pressure in the near term. Turning to margin, our gross profit, calculated by excluding cost of material storage and logistics from net revenue, reached ¥1,726.5 million this quarter, resulting in a strong gross margin of 53.8%. This marks a solid improvement both year-over-year, up from 50.1% in the third quarter of last year. The margin improvement results primarily from two factors. First is the benefit of expanding economic scale, and the second is decreased purchase costs driven by our persistent procurement optimization initiatives. On operating expenses, share-based compensation expenses this quarter were ¥104.9 million. This results in our commitment to long-term employee engagement and align their goals with shareholders to provide greater clarity on underlying operational performance. We will reference non-GAAP operating results with a full reconciliation available in our earnings release and Form 6-K. Operating income was ¥454.4 million, representing an operating margin of 14.2%. Excluding share-based compensation expenses, non-GAAP operating income was ¥559.3 million, representing a 17.4% margin. The above-mentioned margin differences reflect our step-up investment in talent recruitment for global expansion, including brand building to support new product launch R&D to enhance our offering and digital infrastructure to elevate customer experience. The operating costs for company-owned tea houses were ¥271.4 million, up 94.7% from a year ago and up 47.4% from the second quarter of 2025. As of September 30, 2025, we operated 367 company-owned tea houses, up from 239 in the second quarter of 2025. On a per-store basis, operating costs have decreased compared to the second quarter of 2025, showing continued improved efficiency at the store level. Other operating costs increased by 7.3% to ¥178.9 million, largely due to higher payroll supporting the expansion of our global store network. On a non-GAAP basis, other operating costs account for 5.4% of revenue compared to 4.7% a year ago. Sales and marketing expenses for the quarter were ¥304.5 million, down 13.4% from a year ago, achieved through disciplined branding promotion. On a non-GAAP basis, sales and marketing expenses representing 9.2% of revenue compared to 9.9% a year ago. General and administrative expenses reached ¥517.4 million, up 59.7% year-over-year, driven by an expanded workforce and additional office facilities supporting global operations. On a non-GAAP basis, G&A expenses represented 13.4% of revenue compared to 9.1% a year ago. Income tax expenses represented 21.4% of income before tax, slightly higher than 20% a year ago. This was primarily driven by the impact of share-based compensation expenses recognized during the quarter. We achieved our 11th consecutive quarter of profitability, with GAAP net income of ¥397.9 million. Non-GAAP net income, excluding share-based compensation expenses, was ¥502.8 million, with a non-GAAP net income margin of 15.7% compared to 18.3% last year. This demonstrates our ability to maintain healthy profitability and margins while continuing to invest for future growth. During the quarter, basic net income per ordinary share was ¥2.07, and diluted net income per ordinary share was ¥2.03. On a non-GAAP basis, basic net income per ordinary share was ¥2.63, and diluted was ¥2.57. Turning to liquidity, we ended the quarter with roughly ¥9,142 million in cash and cash equivalents, which is cash and time deposits. This robust balance sheet, coupled with our 11th consecutive quarter of profitability, provides a solid foundation. Our board has approved a special cash dividend of $0.92 per ordinary share or ADS, totaling approximately $177 million. Payable on or around December 15, 2025, to shareholders of record as of December 8, 2025. This distribution underscores our commitment to enhance shareholder value and reinforce investor confidence in our business model. Our strong cash generation ability enables us to return capital while continuing to invest in growth. This special dividend also demonstrates our conviction in the company trajectory and our dedication to reinforce market confidence in our long-term prospects. At this time, we will not be providing formal financial guidance. Our strategic focus is on key pillars that foster sustainable long-term shareholder value. We are dedicated to continuing product innovation and strategic brand investment to enhance market presence. At the same time, we are boosting operational efficiency to optimize resources and drive improved performance, positioning the company for agile and sustained growth. We are confident in delivering our long-term strategy and growth potential. We will be persistent with prudent management, strategic investment in future drivers, and a commitment to creating durable value for shareholders. We believe our solid financial foundation, clear strategic roadmap, and exceptional team will help us capitalize on long-term opportunities despite market dynamics. With that, I will turn the call back to the operator to begin the Q&A session. Operator, please go ahead. Thank you. We will now begin the question and answer session. To ask questions on the phone, please press star 11 and wait for your name to be announced. To cancel your request, you can press star 11 again. One moment for the first question. Our first question comes from the line of Xi Jie Lin from CICC. Please ask your question. 谢谢俊杰总和Aaron总。我是中金公司分析师林四姐。我的问题主要是，可否请您们阐释一下刚才CEO提到的这个高质量发展战略具体将如何执行。那我来翻译成英文。

So thank you, Jun Jie Zhong and Aaron Zhong. And Xi Jie from CICC, could you please speak more about how will the high-quality development strategy be executed? Thank you. 好的，谢谢你的问题。关于高质量发展的战略，我们公司已经制定了清晰的执行路径。我们将会从品牌、产品、体验和渠道四个维度系统性地推进。首先，在高价值品牌建设方面，我们正在进行全面的品牌升级，核心是推进品牌体验门店的建设，优化顾客的全流程体验。同时，我们也在积极拓展像茶文化主题店、非遗主题店这样的特色门店，以强化我们的品牌文化底蕴和差异化的优势。 我来翻译一下。Thank you for your question. Regarding our high-quality development strategy, we have a clear execution path across four core dimensions: brand, product, experience, and channels. First, in high-value brand building, we're upgrading our brand to speed up the launch of brand experience tea house and streamline the customer journey. At the same time, we're growing specialty houses like tea culture-themed locations and intangible culture heritage-themed tea houses to deepen our cultural roots and highlight what makes the brand stand out. 那么第二呢，是高质量的产品体系打造。在这一方面，我们有四个重点。一是明确并严格执行考察的品质标准。二是对基础核心的原料，我们会进行全面的升级。第三呢，是加强源头到门店的全链路食品质量的建设。我们过去的食品质量在这一次会有大幅度的提升。第四点呢，也非常关键，我们将推进4.0的菜单全面落地，并打造一套产品品质一致性保障的体系，确保为每一位消费者在任何门店都能享受到同样高质量的产品。

Meanwhile, we're building a high-quality product system with four core priorities. First, we'll define and uphold strict premium tea standards. Second, we'll enhance our core raw materials. Third, we'll improve food quality from end to end. Finally, we will introduce the 4.0 menu and guarantee uniform quality for all customers wherever they are. 第三，是推动多品类的创新与产品的拓展。我们将配合4.0菜单推出像特调纯茶这样的新品类，丰富产品矩阵。同时，我们致力于拓展新的消费场景，例如早餐、晚餐时段，以提升门店的时段利用效率。此外，我们还会通过优化产品制作过程中的呈现方式来增强顾客的体验感。 Next, we're driving cross-category innovation and new consumption scenarios. With the 4.0 menu, we're adding exciting new categories like specialty to mix things up. We're also expanding into additional consumption scenarios, including breakfast and evening hours, to improve store utilization across different times. In addition, we'll fine-tune how products are shown while they are being prepared to make the experience even better for customers. 第四，是升级会友的体系。我们正在对会员体系进行升级，目标是搭建一个真正的会友平台与利益共享的体系。这有助于进一步提升我们超过2.2亿会员的粘性和复购率。同时，我们也在持续优化门店的软硬件设施，提升整体的运营效率和顾客的满意度。

We're also enhancing the membership experience with the revamped membership system to build a true member community and mutual benefit network. This will boost the stickiness and repeat purchases for our 222 million members. At the same time, we're optimizing store facilities and technologies to improve efficiency and customer satisfaction. 最后是执行高质量的渠道策略。我们在门店规模上，我们会持续保持健康的增长。本季度我们净增长了300家门店，未来计划维持稳健的拓店节奏。更重要的是，我们将持续推进高质量的门店布局，像我们本季度在香港开业的超级茶餐门店和赞助上海大师赛的快闪店一样，这些店有能力彰显我们的品牌价值，提升我们的品牌形象。

Finally, we're reshaping a strong channel strategy. Our tea house network is expanding at a healthy pace, with 300 new tea houses added this quarter, and we will maintain a steady pace to tea house expansion. We're also pushing ahead with standout flagship tea houses, such as the Chagee Tea House in Hong Kong and the pop-up store at 2025 Shanghai Masters. These showcases really highlight what the brand stands for and enhance our brand awareness. Thank you. Operator, next question, please. Thank you. One moment for the next question. Our next question comes from Xiaobo Wei of Citi Group. Please ask your question. 你好，管理层好。我是花旗的魏小波。我用中文问一下，就是很简单的，能不能请Aaron总刚才讲的关于海外门店的情况、扩店，还有运营情况跟我们做个分享。

Could you share more color on the overseas market network expansion as well as the store operating in the non-China regions? Thank you. All right. Thank you, Xiaobo. Our overseas markets are a pivotal growth driver. The momentum is solid across our tea house. This quarter, we enter into the two new markets, Philippines and Vietnam, while our store counts in Malaysia have exceeded 200 currently. This is a big milestone. Our local operations are showing strong signals. Our localized products and marketing campaigns will achieve the greatest success. For example, our September collaboration with Pop Mart generated a tremendous response across the Southeast Asian. In Malaysia, the Green Grab series made up 50% of cups sold on the first day, making our all-time high. During the campaign first week, tea houses in Singapore achieved average daily sales of over 500 cups of the product. Our PC Ulong milk tea also performed exceptionally well. It captured over 30% of cups sold in Indonesia within 15 days since launch and about 16% in Thailand, making a top seller in both markets. These are successful localization efforts combined with our steady store expansion pace, giving us strong confidence in overseas growth in Southeast Asia. Moving forward, we will continue deepening our presence in those markets we've entered, steadily expanding into new markets, and keep improving per-store profitability and the brand impact. Operator, next questions, please. Thank you. As there are no further questions, I would like to hand the conference back to management for closing remarks. Thank you again for joining our call today. If you have any questions, please feel free to contact us or request through our IR website. We look forward to our next call with everyone. Have a great day.